On February 29th, 2024, you’ll be upgraded to the latest version of Equidam, with updated valuation parameters.

This update may result, on average, in a slight valuation decrease. To help explain why, we have provided more detailed analysis in the article below.

What’s changing:

1. Average valuations used in the Scorecard Method and maximum valuations used in the Checklist Method

We base our estimates on real transactions by country since August 1st, 2021. Whenever we were not able to find a significant amount of real pre-money valuations in a given country, we broadened our perspective to the closest larger geographic entity (namely, continental region and continent). You can refer to the table at this link to see how they will change for your country specifically.

2. Industry EBITDA multiples used in the VC and DCF with multiple methods

Our multiples are based on public market conditions at the beginning of the current year. Data is taken at the global level and aggregated by industry. You can refer to the table at this link to see how they will change for your industry specifically.

3. Discount rate components used in the two DCF methods

Most of the parameters determining the discount rate have been updated to reflect the most recent market situation in terms of systemic and industry-specific risk. You will be able to see these parameters in your valuation reports.

Startup Valuations adjusting to global uncertainty and macro trends

Broadly speaking, this update confirms the challenging environment for startups and a continuation of the correction from the highs of 2021. In addition to facing the realities of a cyclical market, we also have to pay attention to events and conditions around the world which have an influence on startup valuations. These include heightened global uncertainty fueled by ongoing conflicts, the impact of interest rates, and persistent supply chain disruptions. These challenges have presented significant hurdles for industry, dampening the optimism that we have observed influencing startup fundraising over the past decade.

This pessimism is not uniform across the board, and there are always industries or regions which push through (or side-step) headwinds to outperform. The excitement around AI and its potential applications across various sectors has injected a dose of optimism into the fundraising market, suggesting that while the path forward may be challenging, there are still significant opportunities for growth and innovation. This particular sector creating such enthusiasm from founders and investors is likely responsible for much of the ‘green’ you’ll see in our parameter changes, versus the ‘red’ described above.

A challenging year for venture funding
  • According to Crunchbase, 2023 marked a notable downturn in global startup investment, reaching $285 billion — a significant 38% decline from the $462 billion invested in 2022. This downturn was felt across the board, with early-stage funding down by more than 40%, late-stage by 37%, and seed funding by just over 30%.
  • Carta‘s data sheds light on company valuations, revealing that about 54% of companies receiving new 409A valuations in Q3 saw their valuation remain unchanged, the highest rate of flat 409A valuations since 2018. Meanwhile, 29% of companies saw an increase, and 16% experienced a decrease in their 409A valuation.
  • Pitchbook’s findings further underscore the cautious sentiment, with the estimated percentage of down rounds in the U.S. reaching a 10-year high at 17.1% and remaining largely flat in Europe.
  • There is light at the end of the tunnel for founders, with many industry experts speculating that 2024 will at least prove to be a steadier environment, if not an improvement.

We expect greater stability across startup fundraising at all stages moving forward, as participants finish adjusting to the new environment with a little more focus on diligence and financial health. Pre-seed, which had relatively little impact from the correction, has been stable for a full year already – and later sectors should follow suit there.

Industry insights:

Analysis of changes in the EBITDA multiples offers an interesting perspective on how potential is shifting in different industries, influenced by technological advancements, political changes and occasionally by world events. To highlight a few examples: the semiconductor industry experienced an increase in EBITDA multiple (+18%), reflecting the demand for semiconductor technology amidst a global chip shortage and the accelerating interesting in AI. Industries like Marine Freight & Logistics and Shipbuilding (-47%) saw fall in their multiples, likely due to the ongoing disruptions in global supply chains, first due to COVID and in relation to Ukraine and conflict in the Red Sea. Conversely, the Airlines and Airport Services sectors faced a reduction in multiple (-66%), illustrating an end to pandemic driven turbulence in the sector and a return to 2019 levels of profitability.

Financial services, such as investment banking (+85%), showcased significant growth in EBITDA multiples, possibly attributed to rising interest rates and increased market activity. This growth underscores the sector’s resilience and adaptation to the changing economic landscape. On the other hand, consumer-facing sectors like Apparel & Accessories and Retail experienced downturns, suggesting a shift in consumer spending habits, possibly towards digital experiences over physical goods or reflecting broader economic pressures on discretionary spending.

Regional dynamics:

Examining the trends in early-stage startup valuations around the world offers another perspective on how world events, economic shifts and technological advances are shaping startup fundraising.

In this update, we see more increases in the maximum valuations, while changes in the average are balanced. This is an interesting contrast to other recent updates where the average has remained more stable and the maximum has generally decreased—which is the logical consequence of a market correction. This certainly relates to a the trend we observed at pre-seed, with greater divergence away from the median indicating more uncertainty around valuations. This is the product of a number of factors including AI inflating valuations at the high-end in many countries, as well as downwards pressure on the rest of the market due to the tougher fundraising climate.

This is further emphasized by the increases generally being found in non-traditional startup hubs, less affected by the broad correction, whereas many of the most well-developed startup hubs, like the United Kingdom, France and the United States, have seen significant falls in both average and maximum valuations. This is where we may be seeing not just the impact of the market correction, but also the follow-on effect on investors who were over-invested at the peak of the bubble in these ecosystems, and are now unable to deploy capital at quite the same rate—driving up demand from startups and thus lowering the price they can command.

Please don’t hesitate to let us know if you have any questions. Thanks for using Equidam!

The Equidam Team